Net Asset Value (NAV) is a number that determines the value of shares in various securities funds, such as mutual funds, hedge funds, or exchange-traded funds (ETFs). While the share price is constantly changing when the market opens, the net asset value of the fund is calculated at each exchange closing time each day, to reflect changes in the price of the investment held. The calculation of the net asset value makes it easy for investors to monitor the value of their shares in the fund, and the net asset value usually determines the selling value of the shares.
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Part 1 of 3: Calculating Net Asset Value
Step 1. Select an assessment date
The net asset value of a mutual fund, hedge fund, or ETF changes every day when the market opens, because the investment value always fluctuates. In order to calculate the value of your net assets, you must use the funds data for calculations on the dates that are relevant to your needs. Choose a specific date and make sure all values used to calculate the fund's net asset value are from this date.
Step 2. Calculate the total value of the fund's securities at the end of the valuation date
Fund securities are holdings of stocks, bonds, and other securities. because the values of these securities are posted daily, you can learn the value of the fund's investment in each type of security at the end of the valuation date.
This total value must include the value of all cash on hand at the valuation date, as well as all short and long term assets held by the fund
Step 3. Reduce the outstanding fund liabilities
Apart from investments, the fund also has several outstanding liabilities. This liability is the amount of funds borrowed to make additional investments, with the expectation that the funds can earn interest on the investment at a higher interest rate than that paid on outstanding loans. Subtract the amount of these debts from the total value of the calculated securities.
The fund prospectus will list each of its assets and liabilities. Download the prospectus online or call. Most newspapers have a daily stock exchange section that shows the closing value of all traded shares
Step 4. Divide by the number of shares outstanding in the fund
The result of this calculation is the value of net assets, or the value of the portion of one share to the assets owned by the fund. If you have multiple shares in the fund, you can divide the net asset value by the number of shares held to find out the market value of your investment. The net asset value generally determines the buy or sell price of the mutual fund so you can expect to resell the stock at a price close to the net asset value.
- For mutual funds, the net asset value per share is calculated daily. This calculation is based on the closing price of the fund's securities.
- Buy and sell orders for mutual funds are processed based on the net asset value on that date. Since the net asset value is calculated at the close of the exchange, investors will have to wait until the next day to trade that price.
Part 2 of 3: Evaluating Long-Term Fund Performance with Net Asset Value and Total Return
Step 1. Calculate the total refund
The total return of funds is the sum of the value of all dividends paid, the value of capital gains paid, and all increases in net asset value over the tenure of the security holder, divided by the purchase price of the fund. The total return is presented in the form of a percentage to describe the percentage of the purchase price received by the security holder in cash distributions and the appreciation of funds during the investment period of the fund.
Mutual funds are required by law to distribute capital gains (positive cash flow from buying and selling shares with the mutual fund) to the fund's shareholders. This is different from shares because the holder receives capital gains as an increase in the share price, and not in the form of direct payments. Therefore, the net asset value of the fund alone is not sufficient to evaluate the long-term performance of the fund
Step 2. Evaluate your total refund rate
You must analyze the total rate of return to determine whether the income received from the investment of the fund is sufficient or not. Most funds are fairly diversified, and mutual funds should outperform the stock market. While the stock market is constantly changing, it's a good idea to evaluate the performance of your fund against the market to make sure it's getting a fair return.
In the US, from 1962 to the present, the S&P 500's annualized return is 10%. The S&P 500's annualized return from September 2005 to September 2015 was 7%. It should be noted that the returns received vary depending on the period of ownership, and returns on individual shares can vary widely. You should compare the total rate of return against the stock market rate of return for the period being assessed, while considering a reasonable overall rate of return
Step 3. Evaluate the net asset value of your fund
The net asset value is a good indicator of how well a fund's investment is retaining its value. If you buy a mutual fund of Rp. 500,000, your investment income is Rp. 50,000 per year, and are able to maintain a net asset value of Rp. 500,000 per year, you are basically earning 10% interest on the fund annually and the raise is much higher. higher than the savings interest rate. By following the net asset value of your fund's shares, you can monitor whether the investment is able to maintain its value, as well as generate income.
Most investment experts warn of the dangers of using net asset values for investments just like valuing stock investments using daily stock prices. Because a mutual fund pays out all of its earnings and capital gains to its shareholders, (in addition to the management fees paid to manage the fund), a successful mutual fund does not have to increase its net asset value over time. Instead, the net asset value needs to be maintained while providing interest payments to shareholders
Step 4. Adjust your fund investment
After assessing the net asset value and total return on investment performance of your fund, consider whether the investment needs to be adjusted or not. While mutual funds are considered one of the safest and most diverse stock investments, some funds focus specifically on specific market areas, such as technology or healthcare. If you feel that a particular fund is not providing the expected return, switch elsewhere and adjust your investment accordingly.
Part 3 of 3: Understanding Other Applications of Net Asset Value
Step 1. Determine the economic value of a company
This is known as the asset-based approach to valuing a company. This approach is used when the business is no longer operating and is preparing for liquidation.
- Choose a valuation date and use the balance sheet on that date.
- If necessary, restate assets and liabilities at fair market value. This means that the value of the company's assets and liabilities is restated according to the current market buying and selling prices. This method can be applied to assets such as inventories, capital equipment and property as well as liabilities such as litigation and accrual guarantees.
- Include all unrecorded assets and liabilities that are not stated on the balance sheet but still affect the value of the company. For example, all litigation is pending so the company needs to make payments in the next operating cycle. Enter the amount of the company's estimated loss.
- Subtract assets by liabilities, and divide by the total number of common shares to obtain the company's net asset value per share.
- For example, suppose a company has assets of Rp. 120 million, liabilities of Rp. 100 million, and 10 million of common stock. Assets minus liabilities resulted in Rp20 million. Net Asset Value per share of the company is IDR 20 million / 10 million = IDR 2 per share.
Step 2. Evaluate the performance of a real estate investment fund (DIRE)
DIRE is a company that owns profit-generating properties and investors are welcome to buy shares of this company. You can calculate the book value (value of the property minus depreciation) of all the properties in this investment. However, the calculation of net asset value provides a better picture of the market value of DIRE's shares.
- Start by appraising the property owned by the DIRE. One method is to divide the property's operating profit (revenue less operating expenses) by the capitalization rate (ie the expected rate of return on the property based on its profits).
- For example, if the DIRE's total operating profit is IDR 200 million and the average capitalization rate is 7%, the property value is IDR 286 million (IDR 200 million / 7% = IDR 286 million).
- If you already own the value of the property, subtract the liability, such as the mortgage debt you still have, to get the net asset value. For example, let's say the total mortgage debt and other liabilities of the example above is Rp. 187 million. The net asset value of the property is IDR 286 million - IDR 187 million = IDR 99 million.
- Divide the net asset value by the number of common shares. Say there are 30 million shares. The net asset value per share is IDR 99 million / 30 million = IDR 3.30 per share.
- The quoted price per share for DIRE should in theory be close to the net asset value per share
Step 3. Assess the performance of the variable universal life insurance policy
Variable universal life insurance policies are similar to mutual funds. This policy derives its cash value by investing in separate accounts. The value of a security may change with market fluctuations. Because this policy is sold in the form of unit ownership of the policyholder, the value of the policy can be evaluated by calculating the net asset value per unit.
